You can save a considerable amount of money in inheritance tax if you know what to consider in a will.
In Finland, anyone can inherit up to €20,000 tax-free. A widow or widower, on the other hand, can inherit up to €110,000 tax-free. Inheritance can also be divided among several beneficiaries. It is also worth considering carefully whether to give in the will property ownership rights or with the right of administration.Inheritance tax is always paid by the party to whom ownership is transferred.
ATTENTION! Inheritance tax is progressive: the tax rate increases as the value of the inheritance increases!
Inheritance tax varies. The tax rate also depends on the relationship: close relatives (e.g., children, grandchildren, a spouse's children, and a spouse) belong to the first category, while siblings and all more distant relatives fall into the second tax category, where taxation is higher than in the first tax category.
Spouse's children belong to to a lower tax bracket in certain situations.
You can donate assets in advance.
A gift of €5,000 is tax-free. However, please remember that donated sums accumulate over a three-year period. Therefore, if you donate more than €5,000 to the same person within three years, they will be liable for gift tax. Read more about donations. here.
Advance inheritance The aim is to ensure equal treatment among direct descendants. For example, a parent can provide financial assistance to one of their children during their lifetime and designate that gift as an advance on inheritance. In the final division of the estate, this child will receive an amount from the assets to be distributed at that time that is less by the value of the gift than what the other children receive. The advance on inheritance system supports the principle of equal division among heirs.
In some situations, it is worth planning your own inheritance by gifting assets to future heirs during your lifetime. A gift given to a direct heir during your lifetime is considered an advance inheritance. If you wish to gift assets without the presumption of advance inheritance, read on. here. It is always advisable to draw up [something] regarding donations Gift book.
Can inheritance tax be paid from the inheritance?
Inheritance tax is payable by the heirs. They will receive a personal tax bill approximately 6 months after the inventory of the estate has been submitted to the Finnish Tax Administration. The tax bill will be sent either by post or to OmaVero.
If the heirs to an estate are in agreement, the inheritance tax can, if necessary, be paid from the bank account of the undivided estate. You can read more here.
Inheritance tax adjustment
Once the inheritance tax has been confirmed, if you believe your inheritance has been incorrectly assessed, you should file an appeal with the Tax Administration.
Correction of inheritance tax in the sale of an apartment occurs by submitting the deed of sale for the sold apartment to the Tax Administration if the sale price of the apartment deviates from the value declared for the apartment in the inventory and division document.
Life insurance and inheritance tax
Life insurance benefit The benefit paid to the beneficiary of a life insurance policy is subject to inheritance tax. The life insurance benefit and the beneficiaries are always entered into the inventory of the estate.
How is the inheritance tax on a summer cottage determined?
A summer cottage can be gifted to children or grandchildren during one's lifetime.. A donation made during one's lifetime is an effective way to save on inheritance and gift taxes. The recipient of the gift pays inheritance tax on it.
A condition can and should be attached to a gift, according to which the donor retains the right of lifelong use of the summer cottage. The right of lifelong use reduces the amount of gift tax. With this condition, the donor secures their own right to use the summer cottage. The recipients, in turn, receive a significant tax benefit.
Inheritance can be passed down through generations to grandchildren.
Inheritances can also be split between heirs, as inheritance tax is payable on a per-heir basis. The percentage decreases as the inheritance is shared by more people.
For example, a will could leave a €20,000 inheritance to five grandchildren, thereby transferring €100,000 forward tax-free. This would save one generation's inheritance tax.
The average age of an heir in Finland is around 60 years. At that age, the need for money may not be as great, necessitating the use of the entire inheritance. It is not obligatory to accept an inheritance; one can renounce it in favour of their children. When renouncing an inheritance, the assets pass to the person who would have inherited them if the renouncer had already died – usually one's own children. There may be a need to secure one's spouse and, at the same time, perhaps
We want to consider how assets can be transferred to future generations with the smallest possible tax implications. It is not possible to waive an inheritance tax-efficiently only partially.
Reciprocal will and widow's inheritance tax
Typically, spouses do between themselves mutual will, which stipulates that the surviving spouse shall be granted the right of possession and use of the deceased's estate or part thereof. The surviving spouse already has the right of possession of the shared home directly by law. The right of possession and use means that even though ownership is transferred to the statutory heir, the holder of the right of possession and use can continue to use and manage the property.
In a mutual will, a surviving spouse can also be left with financial assets or other property ownership rights free of inheritance tax up to the value of €110,000.
Incidentally, the inheritance tax on a mutual will varies depending on whether assets are received with full ownership or with the right of use. The inheritance tax on a mutual will also varies according to the value of the inherited assets.
There is a definite tax advantage to control and usage rights.
The usufruct reduction reduces the inheritance tax value of the asset, thereby reducing the inheritance tax for the heirs.
Management and usage rights can also be granted for assets other than real estate or dwellings, for example investments or cash funds. In such cases, the surviving spouse shall be entitled to enjoy the returns on the investment, such as rental income from an investment property.
If the surviving spouse inherits the right to use the apartment, the inheritance tax on the apartment will be levied on the party who inherits the ownership of the apartment, i.e. the surviving spouse.
A mutual will is advisable in many ways: it clarifies the surviving spouse's position and also relieves the estate of inheritance taxes.
The spousal deduction in inheritance tax means that the surviving spouse's inheritance tax liability on assets received in full ownership is calculated if the value of the assets exceeds €110,000.
How to avoid inheritance tax
The inheritance tax rate varies because inheritance taxation is progressive. The inheritance tax threshold is €20,000 and €110,000 for a spouse. For inheritances larger than these amounts, the beneficiary must pay inheritance tax.
Inheritance can be divided into portions among multiple beneficiaries such that each of them inherits less than €20,000. Inheritance of less than €110,000 can and should be left to the surviving spouse with full ownership rights.
A surviving spouse does not need to pay inheritance tax on assets inherited by right of usufruct; instead, reduced inheritance taxes will be levied on the party who inherits beneficial ownership of the assets. The spouse's age significantly influences the relief. It is advisable to read more about estate planning. here.
Related articles:
Inheritance division
Spouse's children as heirs - do you know which inheritance tax bracket they belong to?
Inheritance tax deductions / Deduction for management rights